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Sunday, 28 July 2013

My wife was at a conference recently where one of the topics was how financial literacy needed for our kids has changed compared to what their parents and grandparents needed. An interesting topic. Here are some areas where I see this.

1) Payment methods. It wasn't too long ago "cash was king". Most people paid for things with cash or personal cheques and had a paper book to updated at their local bank branch. Now people rarely physically go into a bank branch but use ATMs or instore cash-back to get cash, use ATMs, online methods and sometimes cheques to pay bills and debit cards, credit cards, smart devices or cash to make instore purchases. What does this mean for our kids? First, they have a lot more options so need to know a lot more to make the right choices. Second, some things critical to financial literacy such as budgeting and cash management are a lot harder. When you just had cash and your bank book it was easier to find out how you were doing compared to your budget compared to now where you can easily spend money via your debit card, for example, and not know your account balance.

2) Investments. I remember my parents range of investments, when I was growing up, amounted to banks accounts, GICs, and Savings Bonds. Sure there were people investing in stocks, bonds and other investments but not generally the "masses". Then came new investment types (e.g. Mutual funds) and channels to access them ( e.g. Online access to self controlled accounts). This led to a huge shift in people investing in asset types they never did before and an increase in "do-it-yourselvers". For our kids, they need to know enough to understand their investment choices so they can invest on their own or at minimum have some basic background to understand what is being offered to them by investment professionals.

3) Outsourcing. Many people now will "outsource" some of their routine non-paying work to others compared to previous generations. People eat out more frequently (i.e. don't cook for themselves), hire others to clean their house, or cut their grass. For our kids, this has created an expectation, and with this, the need for the extra income to fund this and more thought on how to budget for these "nice to haves".

3) Supersize. The rise of consumerism has created the demand for the "supersize" whether for restaurant meal portions, cars, houses, TVs or other items. We have created a strong desire for these "nice to haves" and the feeling for our kids that it is okay to go into debt to get them.

This list could go on and on. So what does it all mean? For me, it has further reinforced the need for our kids to gain financial literacy knowledge prior to needing it rather than learning only through their own experiences or by accident.